Archive for June, 2010
Compress your Value Stream for Unprofitable Customers
Posted by: | CommentsA while ago it seemed like all customers were profitable. Sure we had a bad apple or two but most of the time we sold a product, customers bought it and as a result we made money. In today’s environment it is very different. I would venture to say many of your customers are not profitable. When you start looking at true costs you probably will find that you are actually losing money to double or triple the percentage that you would first think.
The pricing pressures we have faced in the last year or two has even added to the number of non-profitable customers. The rapid commodity of your product and increased Internet purchases are two more examples that has accelerated the decline of profit margins. I can use the analogy of a stream full of rocks (customers) and as the water is lowered more rocks start appearing. These unprofitable customers are appearing daily. However, in these economic times even a bad customer is valued because they seemed to help support your fixed cost. This puts additional pressure on your profitable customers and at a risk that you could hardly afford to continue. If you do, you may start losing the profitable ones.
Most advisors will tell you replace or remove these unprofitable customers. It is sound and prudent strategy, but who is going to give up a customer in these economic times? I certainly would not.
My strategy is to first; rate your customers by profitability. That can be a rather eye-opening experience. It may not only tell you who to value but also what they value about your organization. This of course is the marketing segment that you want to spend your efforts and more than likely your money on developing and maintaining.
Secondly, I encourage you to build your marketing value stream segmenting customers by profitability levels. You may end up with several swim lanes but try to put the marketing flow, your value stream in for each segment.
Thirdly, segmenting these customers will allow you to better see what they don’t value. You may see something they are not utilizing such as training, engineering support, etc. Not all people or organizations value the same thing. To build the unprofitable customer segment into a profitable stream may only take the removal of certain items, streamlining your offering. Other features may have developed into your product that became normal and just easier to include all the time. Strip these out and offer a lower cost model. I am not necessarily thinking about just the end product or service but also the overhead associated in operations, sales, and marketing.
Compressing this value stream may even create additional opportunities. Customers left to their own imagination on how to utilize a simple product that they understand create some of the best product innovation. You will even get better at distinguishing your customer’s preferences and anticipating their needs. Customers are moving to what I would call marketing singularity. Having marketing segments as small as one person may not be that far in the future. The key will be taking these simpler segments and still maintain profitability rather than just passing them on to your competitor.
Finding the Voice of Customer in Design for Six Sigma – eBook
Posted by: | CommentsDr. Kai Yang was the guest on the Business901 Podcast and this is a transcription of the podcast. Our conversation addressed the message of his latest book, Voice of the Customer: Capture and Analysis (Six Sigma Operational Methods).
Voice of Customer in Design for Six Sigma
Dr. Yang is a Professor in the department of Industrial and Manufacturing, Wayne State University. His areas of expertise include Six Sigma, statistical methods in quality and reliability engineering, lean product development, lean healthcare, and engineering design methodologies.
I found it interesting that Dr. Yang has worked with Apple and questioned him about it. Black T’s and blue jeans didn’t seem like a cultural fit with Six Sigma. Find out the how’s and why’s of Capturing and Analyzing Data, the Blue Ocean Strategy of Apple and Dr. Yang’s description of survey’s and the practical example of a restaurant may surprise you.
Related Podcast: From a Small Restaurant to Apple, Learn how they Capture and Analyze Data
Related Posts:
Six Sigma Marketing Lessons from Eric Reidenbach
Value Stream Marketing eBook Released
Why should 50% of your marketing fail?
Posted by: | CommentsThe need for a high failure rate is in direct contradiction to many of my conversations. It is also against most people’s approach of trying to do everything right the first time. I was reviewing one of Donald Reinertsen older books, Managing the Design Factory
Why should 50% of your marketing fail?
Using the Information Theory: the more probable the event, the less information that is needed. Why is that true? If you receive information that you expect, it contains little information. For example, if you have a targeted message to one person, that information will have a better chance to succeed. If you send the same message to 2 people, you have introduced more risk and less chance to succeed. So rather than try to drive failures out of the process or become more efficient we must introduce large amounts of information and as a result more risk. In fact, that magic number for efficiency is 50%.
To generate that 50% number lets define the 2 extremes. If we want 100%, the information theory states the lower amount of information needed. That means if we “do it right” the first time we have driven all the information out of the process except for a very select audience. If we look at 0% that means that we provide all the information to a very large audience. An analogy that I use for 0% may be a Super Bowl Ad. I am pretty sure at this point that anyone reading this is not contemplating a super bowl ad next year. My failure rate at this point may be high but it is not at either extreme. At least it is at a starting point.
How do we generate this information efficiently (50%)?
- Distinguish between failures to generate useful information, which are new failures and those that generate information that we already have, which are the old failures.
- Providing tracking information or checklists especially from past experiences. Good accounting of your failures is really more valuable than the description of the most successful work.
- The early you test the better.
- Use the smallest batch size possible.
In our discussions with small batch size strategies we can think of the process is producing potential errors at a certain rate. If we can test early, we choose to receive these errors when the costs of reacting to them are low. The striking advantages of the small batch size are that information arrived early and our total population of errors remains small because it arrives in more manageable chucks. Of course, the more batch sizes you have the more you waste design resource each iteration incurs extra costs and of course extra cost or path.
These two areas are always in direct conflict and one of the things that need to be weighed is the costs of the trials tested. When the cost of the trial is high fewer iterations will be performed and vice versa. However, frequent iterations can actually be much more valuable than people suspect.
I think this is a very interesting concept and deserves further study. I use this theory in developing Facebook and Google Ads on a regular basis. Seldom are my ads stagnant. They are constantly evolving and change as success rates change. For an example, if you have a campaign that has three or four ads in it, you can constantly evolve these ads to increase hit rates or conversions…but only try to be 50% successful!
Related Material:
Developing Products in Half the Time: New Rules, New Tools, 2nd Edition
The Principles of Product Development Flow: Second Generation Lean Product Development
Related Posts:
The Pull in Lean Marketing
Finding the Voice of Customer in Design for Six Sigma – eBook
Agile, Scrum, Kanban, or is it just a Marketing Funnel?
